The Depth of the 2,500 Yen Nikkei Drop: AI Analysis of Buyback Conditions Indicated by Technicals and Earnings Realities

Summary

On July 28, 2026, the Japanese market saw a significant decline in the Nikkei Stock Average of over 2,500 yen. The index broke through both the 25-day and 75-day moving averages, which had been supporting short- and medium-term uptrends, creating a sense of caution on the charts. Meanwhile, the earnings results released the same day by Keyence and Nitto Denko showed strong growth in both revenue and profit. We examine the timing for future buybacks from both sides: the oversold signals indicated by technicals and the solid performance indicated by fundamentals.

Three Overseas Factors That Broke the Chart and the Collapse of Technicals

On the Tokyo Stock Exchange on July 28, the Nikkei Stock Average fell sharply, closing at 62,364 yen, down 2,566 yen from the previous day.

This sharp drop caused the index to break through both the 25-day and 75-day moving averages, which had previously supported the downside, under strong selling pressure. On the charts, this provides a strong signal that shifts the focus from short-term dip buying to a downward trend.

This decline was triggered by three areas of concern originating from overseas markets.

First, there are reports regarding Nvidia's data center support for OpenAI. Concerns about circular trading through financial guarantees spread, and the company's stock decline in the US market triggered a chain reaction in Asian markets.

Second, there is the structural change in the Chinese market. Reports of the listing of Chinese memory giant CXMT and the progress of domestic production of manufacturing equipment have deepened concerns about future price competition.

Third, there is risk-aversion selling ahead of Big Tech earnings. Investor sentiment, wanting to gauge the cost-effectiveness of AI investments before the earnings of major companies, has come into play.

Divergence Between Micro Real Demand and Technicals Seen in Earnings Announcements

Although the charts show a clear breakdown, when we turn our perspective to the fundamentals of individual corporate performance, a different reality emerges.

Keyence's first-quarter earnings showed a significant increase in both revenue and profit, with sales of 346.6 billion yen (up 32.8% year-on-year) and operating profit of 187 billion yen (up 44.7% year-on-year). The strength of factory automation (FA) demand in North America and Asia is reflected in these figures.

In addition, Nitto Denko's first-quarter operating profit was 49.2 billion yen (up 15.4% year-on-year), and the company revised its full-year operating profit forecast upward to 200 billion yen. It can be confirmed that real demand for materials such as those for AI servers is trending solidly.

In other words, the current market is in a state where stock prices are being temporarily pushed down by the backlash of excessive expectations and a deterioration in overall market sentiment, rather than a collapse in corporate performance itself. Technical indicators such as the RSI are also showing historically oversold levels, and the divergence between price and reality is greater for stocks backed by fundamentals.

Buyback Timing Where Technicals and Fundamentals Align

Comparing the rise and fall rates this time, while the Nikkei fell 3.95%, the TOPIX only fell 2.52%. While panic selling occurred mainly in semiconductor stocks, which have a large impact on the index, it is clear that funds are seeking refuge in food, pharmaceuticals, and domestic demand-related sectors.

So, when should you consider buying back? The common points from the perspective of both analyses are as follows.

Confirmation points on the technical side

With panic selling from the sharp decline settling down, the focus in the short term is whether we can confirm a battle at the 62,000 yen mark, or a bottoming out with a lower wick near the 60,000 yen threshold. The key will be whether the downward deviation from the moving average reaches its limit and triggers a sign of an autonomous rebound.

Points to confirm regarding fundamentals

Can we confirm the monetization of AI investments in the earnings reports of major US tech companies due later this week, and is the order backlog being maintained in the earnings of major domestic semiconductor test equipment manufacturers? If earnings support is reconfirmed, it will provide a basis for buybacks to prioritize stocks that have been oversold.

Summary

In phases where the overall market is driven by fear or themes, even companies with solid actual demand may be sold off indiscriminately as technical support lines are breached.

However, the moment when the 'technical rebound signal indicating that selling pressure has reached its limit' overlaps with 'earnings support confirmed in financial results' is the most reproducible opportunity for a buyback. Avoiding emotional trading and maintaining objective observation based on numerical and disclosed data is required.